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ILTIS UI 1730, net 70, and decides to forgo the trade credit discount and pay on the net day, what is the annualised cost to that firm of forgoing the discount? 3 If Ice Nine changes its trade credit terms to 2/60, net 90, what is the annualised cost to a firm that buys on credit from Ice Nine and decides to forgo the trade credit discount and pay on the net day? 4 What is the estimated change in profits resulting from the increased sales less any additional bad debts associated with the proposed change in credit policy? 5 Estimate the cost of additional investment in accounts re- ceivable and inventory associated with the proposed change in credit policy. 6 Estimate the change in the cost of the cash discount if the proposed change in credit policy is enacted. 7 Compare the incremental revenues with the incremental costs. Should the proposed change be enacted'? this problem: New sales level (all credit) Original sales level (all credit) Contribution margin Percentage bad debt losses on new sales New average collection period Original average collection period Additional investment in inventory Pre-tax required rate of return New percentage cash discount Percentage of customers taking the new cash discount Original percentage cash discount Percentage of customers taking the old cash discount to w00$ 25% 75 days 60 days 15% %0S %0%

ILTIS UI 1730, net 70, and decides to forgo the trade credit discount and pay on the net day, what is the annualised cost to that firm of forgoing the discount? 3 If Ice Nine changes its trade credit terms to 2/60, net 90, what is the annualised cost to a firm that buys on credit from Ice Nine and decides to forgo the trade credit discount and pay on the net day? 4 What is the estimated change in profits resulting from the increased sales less any additional bad debts associated with the proposed change in credit policy? 5 Estimate the cost of additional investment in accounts re- ceivable and inventory associated with the proposed change in credit policy. 6 Estimate the change in the cost of the cash discount if the proposed change in credit policy is enacted. 7 Compare the incremental revenues with the incremental costs. Should the proposed change be enacted'? this problem: New sales level (all credit) Original sales level (all credit) Contribution margin Percentage bad debt losses on new sales New average collection period Original average collection period Additional investment in inventory Pre-tax required rate of return New percentage cash discount Percentage of customers taking the new cash discount Original percentage cash discount Percentage of customers taking the old cash discount to w00$ 25% 75 days 60 days 15% %0S %0%

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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To help in your decision on relaxing credit terms, you have been asked to respond to the following questions: Your first major assignment after your recent promotion at Ice Nine involves overseeing the management of accounts receivable and inventory. The first item you must attend to involves a proposed change in credit policy which would Questions involve relaxing credit terms from the existing terms of 1/50, net 70 to 2/60, net 90 in the hope of securing new sales. The What determines the size of investment that Ice Nine makes management at Ice Nine docs not expect bad debt losses on its current customers to change under the new credit policy. 2 If a firm currently buys from Ice Nine on trade credit with The following information should aid you in the analysis of this problem: in accounts rcceivable? the present terms of 1/50, net 70, and decides to forgo the trade credit discount and pay on the net day, what is the annualised cost to that firm of forgoing the discount? 3 If Ice Nine changes its trade credit terms to 2/60, net 90, what is the annualised cost to a firm that buys on credit from Ice Nine and decides to forgo the trade credit discount and pay on the net day? New sales level (all credit) Original sales level (all credit) Contribution margin Percentage bad debt losses on new sales New average collection period Original average collection period Additional investment in inventory Pre-tax required rate of return New percentage cash discount Percentage of customers taking the new cash discount 00 0 0008 25% 8% 4 What is the estimated change in profits resulting from the 75 days 60 days increased sales less any additional bad debts associated with the proposed change in credit policy? 5 Estimate the cost of additional investment in accounts re- 000 0 00 ceivable and inventory associated with the proposed change in credit policy. 6 Estimate the change in the cost of the cash discount if the proposed change in credit policy is enacted. 2% %0% Original percentage cash discount Percentage of customers taking the old cash discou 1% 7 Compare the incremental revenues with the ineremental 50% costs. Should the proposed change be enacted? 11:11 18/08/ Q) ENG 11"C 88% 直
Transcribed Image Text:To help in your decision on relaxing credit terms, you have been asked to respond to the following questions: Your first major assignment after your recent promotion at Ice Nine involves overseeing the management of accounts receivable and inventory. The first item you must attend to involves a proposed change in credit policy which would Questions involve relaxing credit terms from the existing terms of 1/50, net 70 to 2/60, net 90 in the hope of securing new sales. The What determines the size of investment that Ice Nine makes management at Ice Nine docs not expect bad debt losses on its current customers to change under the new credit policy. 2 If a firm currently buys from Ice Nine on trade credit with The following information should aid you in the analysis of this problem: in accounts rcceivable? the present terms of 1/50, net 70, and decides to forgo the trade credit discount and pay on the net day, what is the annualised cost to that firm of forgoing the discount? 3 If Ice Nine changes its trade credit terms to 2/60, net 90, what is the annualised cost to a firm that buys on credit from Ice Nine and decides to forgo the trade credit discount and pay on the net day? New sales level (all credit) Original sales level (all credit) Contribution margin Percentage bad debt losses on new sales New average collection period Original average collection period Additional investment in inventory Pre-tax required rate of return New percentage cash discount Percentage of customers taking the new cash discount 00 0 0008 25% 8% 4 What is the estimated change in profits resulting from the 75 days 60 days increased sales less any additional bad debts associated with the proposed change in credit policy? 5 Estimate the cost of additional investment in accounts re- 000 0 00 ceivable and inventory associated with the proposed change in credit policy. 6 Estimate the change in the cost of the cash discount if the proposed change in credit policy is enacted. 2% %0% Original percentage cash discount Percentage of customers taking the old cash discou 1% 7 Compare the incremental revenues with the ineremental 50% costs. Should the proposed change be enacted? 11:11 18/08/ Q) ENG 11"C 88% 直
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